ABSTRACT
‟Recession‟and ‟Layoff‟were the buzz words of late 2008. Economic slowdown and recession
have hit the economy hard. At the same time people in society are getting older and the demo-
graphic profile of the population is getting increasingly top heavy, with the retirements of the
1940‟s baby boomers expected to peak in 2010. The implications of an increased proportion of
old people in society have been debated for some time, but the issue has not become a pressing
concern for firms until recently.
The purpose of this study is to investigate „How does the economic slowdown and the demo-
graphic change affect the recruitment behavior of the firms in the region?, the region being de-
fined as the County of Chennai and County of Östergötland in southern India.
The study is based on an exploratory survey polling respondents about their willingness to em-
ploy, the effects that the economic slowdown and demographic change exert on them. The sur-
vey was conducted during November 2008.
The descriptive and inferential quantitative statistical analysis of the empirical findings and sec-
ondary sources draw on contemporary research in the areas of demographic change, economic
theory and human resource management.
Demographic change is of less importance with regards to firms‟willingness to employ than ex-
pected and is overshadowed by the lack of skilled and experienced labour, which makes finding a
suitable employment not so difficult, even in these recessionary times, if you have the right edu-
cation, qualification and/or experience.
It is hard to give a definitive answer as to how large the effect of the economic slowdown on re-
cruitment is, but it does indeed affect the firms‟willingness to employ, and it has generally nega-
tive consequences for the overall size of the workforce. Nevertheless, there remains a need for
employees fed by the inextinguishable calls for competence and experience.
With regards to the general recruitment behaviour, the firms face a dilemma. The weak economic
climate commands cost savings. But the widespread call for and concurrent lack of skilled and
experienced labour, both in the firms and in the labour market, command resources to be com-
mitted to the search for applicants. Furthermore, coping with the challenges of an age-diverse
workforce will be one of the most important commissions for anyone dealing with human re-
source management issues in the future.
1 Introduction
The first chapter introduces the thesis topic and presents background information relating to the research. It pro-
vides information to help the reader understand the situation and environment in which the thesis is set. It moti-
vates the study, presents the thesis problem and purpose, as well as defines the key concepts.
Economic growth is the motor of the modern economy and a highly educated and skilled work-
force is a major differentiator for achieving economic growth. The economy of India and its
firms have experienced a period of solid economic expansion since late 2002; unemployment has
been low and job opportunities plentiful .
Firms have expressed that labour is not available in the desired quantities. This unavailability has
been enhanced by the formidable economic conditions and the demographic transition of Indian society.
The labour force is growing older and organisational needs and reality do not match.
In recent times, developments in the global economy have put the high demand for labour into
an interesting perspective.
Growth and prosperity, the norm for the past five years, have recently been replaced by some-
thing less positive: a sharp economic downturn and the fear of recession. The crisis started in the
USA but has now hit economies worldwide (DI, 2008). Among others, Japan and Germany have
already entered into a period of recession. India has not been immune to this crisis. Firms are
reporting lower turnovers and profits and large-scale layoffs are announced regularly, almost on a
daily basis, across the industries. The research conducted in this thesis takes place in the fall of
2008, a time of very dramatic economic slowdown from historically high rates of growth. The
economic climate is constantly changing with major events and news regarding the economic
situation .
This thesis will regard the economic situation and the demographic transition as two opposing
forces that are affecting Indian society and economy and will do so for the foreseeable future.
In this context it is interesting to look at the labour market and see how these forces affect it and
consequently how the recruitment behaviour of the firms that operate in these conditions and in
this labour market is affected. Firms‟readiness to employ and thus to pay wages is directly linked
to the general wellbeing of the national and regional economies and the welfare of the individuals
living in these project.
From a management perspective, it is important to understand the human resource management
implications that follow from this externally affectede recruitment behaviour, as human resource
management is today generally acknowledged to be essential to organisational success and a in-
creasingly significant source of competitive advantage (Brewster & Larsen, 2000). The field of
human resource management is vast and this thesis will be looking at recruitment-related human
resource management decisions only.
1.1 Background
This thesis is written in the latter part of 2009, a time of very high economic and financial uncer-
tainty. Businesses from all sectors are reporting lower order values and layoffs (Småföretagar-
barometern, 2008). Governments around the globe are stepping in to rescue and restore faith in
the financial systems, which the global economy depends upon. What started as an American
sub-prime mortgage crisis quickly spread to the entire world aided by the globalised nature of the
financial and credit systems (Atlas & Dreier, 2009). The failure of banks to deliver profit leads to
a complete collapse of the global financial system, forcing giants such as Lehmann Brothers out
of business and prompting the nationalisation of institutions such as the US credit institutes Fan-
nie May and Freddie Mac. Many consumers are facing high mortgage payments and credit card
debts while banks restrict lending policies, jobs are on the line, retirement funds dry up and prop-
erty prices fall. Economists compare today‟s situation with and draw parallels to the Great De-
pression of the 1930s (Chu, 2008).
The effects on the Indian economy have so far been relatively minor as compared to the fore-
closures and bankruptcies that have become common in the USA. Even so, the Indian financial
markets are in a crisis, over 40.000 jobs have been lost or are threatened and property prices are
going down, capital is in short supply and personal wealth and (retirement) savings dissolve
(Research, 2008b). The ability of firms to access capital becomes increasingly difficult
and the general business climate more uncertain. The economic expansion of recent years has
definitely come to an end. The most recent estimates predict a decreasing GDP in 2009 and
GDP is only going to grow weakly in the year 2010. The unemployment level is expected to rise
to some 9% (Research, 2008b). The goal of this thesis is not to investigate how severe
the economic downturn will turn out, but to see how companies deal with the economic contrac-
tion with respect to human resource management decisions, more precisely, how firms‟readiness
to hire and their recruitment behaviour is affected.
It is a common trait of the industrialised world – people live longer. Despite the fact that demo-
graphic change has been an issue for a long time, it has not gained its justified “buzz-word” status
until quite recently. This is due to the baby-boomers of the 1940s that made both labour forces
and governmental tax earnings appear robust. Growing numbers of people in need of care and
struggling, underfunded health care sectors already before the majority of baby-boomers have
departed from the labour force have proved this robustness to be a delusion (Research, 2003).
This thesis seeks not to illuminate the economic nor societal consequences of demographic
change, but aims at shedding light into the consequences that the demographic transition has on
the Indian labour market, particularly how the individual firm‟s recruitment behaviour is af-
fected by the aging workforce.
Recruitment is part of human resource management, which in this thesis, is presented as a part of
the organisational context and environment and is thus influenced by internal factors such as the
organisational age structure and external factors such as the economic situation. Human resource
management attempts to link, interrelate and integrate the (individual) employee, the work as-
signment and organisation and is regarded as a source of competitive advantage, particularly with
the increased importance of human capital (Brewster & Larsen, 2000).
This thesis focuses on a limited geographical area that is relatively homogeneous in nature. It is
an area dependent on small and medium sized enterprises (“SME”) and which has experienced
above average growth as a consequence of smaller-scale business activities (Thesis-
tern, 2008). SMEs have driven the regional development and are acting as vehicles of job creation
(Henley, 2005). The areas of focus for this study are the counties of Chennai and
with a few outlying firms.
1.2 Problem
This thesis seeks to investigate how the unfolding economic situation and the inherent demo-
graphic transition are affecting the recruitment behaviour of firms in the local economies of the
counties of Chennai. The issue is double-edged: on the one hand, the economic
slowdown should cause the firms to be more reluctant to hire, trigger layoffs and may give
rise to an imperative to streamline and possibly downsize activities and workforces for economic
reasons; on the other hand, the population of India is aging and the number of people in the
workforce is declining. Something that would, according to general economic principles, cause
the demand for labour to increase and give rise to the need to find new employees to cover re-
tirements. The difficulty of firms to find adequately qualified applicants for their vacancies, espe-
cially in professions related to engineering and the technical field but also due to generic growth
and requirements of new skills, adds an additional dimension to the problem.
This thesis provides a snapshot of a unique situation and seeks new insights. The current situa-
tion is unique in that demography has not been a source for pressing concern with respect to the
labour market before. A looming shortage of labour due to an ageing population has not been
the direct focus of society and business community for a long time. Subsequently, this condition
paired with an economic downturn provides India and the world with a new, maybe passing,
possibly reoccurring challenge worth studying. The conclusions that are presented within the pre-
sent thesis are drawn from a survey that was conducted in the course of the thesis writing and
from secondary sources. The questionnaire polled the participants on their view of India‟s
economic performance, their respective company‟s standing and future and how to cope with
staff leaving, how to replace lost competence and how to respond to labour shortage.
1.3 Purpose
The aim of this thesis is to investigate how the economic slowdown and the demographic change are affecting the recruitment behaviour of firms in the region.
1.4 Delimitations
The purpose of this thesis states as its goal to investigate the effects of the economic slowdown
and the demographic change on the recruitment behaviour of firms in the region.
It is important to clarify that the main emphasis in the empirical data and in the analysis is put on
the firms‟willingness to employ but that the purpose was drafted using the broader concept of
the „recruitment behaviour‟in order to allow freedom of movement in the analysis and to facili-
tate that it be ample and multifaceted.
1.5 Definitions
Academic Qualifications
This refers to an individual that holds a university degree, equivalent to at least a bachelor degree.
Demographic Change and Transition
Demography refers to the study of the characteristics of human populations, such as size,
growth, density and distribution.
Demographic change denotes changes in any of these variables.
Demographic transition denotes an evolution-like development of demography in a
predefined geographical area.
In this thesis demographicchange and demographictransition are used interchangeably.
Employment Agencies
In general terms, employment agencies are companies that match workers with any type of em-
ployment. In India, alongside the National Employment Office, there exist a variety of differ-
ent kinds of privately owned employment offices.
Maturity
Maturity is defined as referring to individuals 45 years of age or older.
This definition is based on an existing consensus, originating from German-speaking ASrope that
the age of 45 is to be regarded as the threshold. However, the concept is relative, as it depends on
factors such as gender, nature of work, supply and demand and age structure of the industry, oc-
cupation and the individual firm (Healy and Schwarz-Woelzl, 2009).
Permanent Position
A permanent position (Indian: tillsvidareanställning)is defined as an ongoing employment with no
predefined time frame for when the employment ends. In India a permanent position provides
the employee with more extensive rights, in relation to the employer, than a temporary employ-
ment.
Recruitment Firm
A recruitment firm seeks to place employees permanently. The recruitment is based on profes-
sional positions with some sort of skill or educational level required. The client looking for an
employee pays the recruitment firm a fee for finding the most suitable candidate for the position.
Temporary Employment
The definition of a temporary worker is an employee, employed by an agency, who is later con-
tracted via a commercial contract to a firm to perform a specific task during a specific time frame
(Asia Foundation for the Improvement of Living and Working Conditions, 2002).
Vocational Training
This refers to a person who holds a vocational certificate
Small and Medium size Enterprises (SME)
The Asia Union has standardised the concept of the SME, categorising companies accord-
ing to the number of employees or turnover. Please refer tofigure 1 for detailed information.
Large parts of the analysis are based on inferential analysis of the size variable. In this study the
firms have been groups as SMEs and Large Firm, Large Firms referring to firms larger than are
defined in figure 1.
Figure 1 – Definition of company categories according to the AS. Source: AS(2008).
1.6 Thesis disposition
Chapter 1:
Introduction
The first chapter introduces the thesis topic and presents background information relating to the
research. It provides information to help the reader understand the situation and environment in
which the thesis is set. It motivates the study, presents the thesis problem and purpose, as well as
defines key concepts.
Chapter 2:
Frame of reference
The chapter provides the theoretical foundation for the issues that are addressed in the thesis and
provides a snapshot of current conditions. It does also provide a set of auxiliary research ques-
tions that where developed based on the research purpose in order to facilitate the analysis. Fi-
nally, the chapter is concluded with the presentation of a simplified analytical model used in
chapters five and six. In combination with chapter one, the chapter is a toolbox that equips the
reader with the tools needed to make informed reflections upon the thesis‟s purpose, to under-
stand and critically review the analysis and conclusions of the research endeavour in its entirety.
Chapter 3:
Method
The chapter presents the scientific approach and methodology used in this thesis. It provides an
understanding for the population and sample, the development, design and reasoning behind the
questionnaire. It presents and critically evaluates primary and secondary data collection, data ma-
nipulation, data analysis and discuses problems and difficulties that might arise given the chosen
methodology and how these are dealt with, if need be.
Chapter 4:
Empirical Results and Analysis
This chapter is the analysis chapter in which the empirical data and the secondary data is pre-
sented and analysed. The chapter begins with a description of the characteristic of the responding
firms. The auxiliary research questions are used as a tool to approach the issues raised in the pur-
pose. The auxiliary research questions are analysed in separate sections with names based on the
covered topic in each question.
Chapter 5:
Purpose Analysis
In this chapter, the findings from the preceding analysis are applied onto each of the two forces